Structural economic vulnerability and public revenue performance

Abstract

This paper investigates the impact of developing countries' structural economic vulnerability (EVI) on their public revenue performance. Relying on a sample of 126 countries over the period 1996-2013, the empirical analysis suggests that EVI exerts a negative and significant impact on total public revenue. However, this negative impact reflects differentiated impact of the EVI's components (namely, the degree of exposure to shocks and the size and frequency of the shocks) on public revenue performance: exposure to shocks influences positively public revenue, while the size and frequency of shocks exerts a negative and significant impact on public revenue. These results apply also to LDCs. In this context, governments in developing countries and the international community should cooperate to mitigate developing countries' structural economic vulnerability. This would help increase their public revenue performance, which is needed to address development challenges, and reduce in the long-run, their dependence on international development assistance.